What small businesses can learn from Woolworths’ business failure

By Josh Hall

The contraction of the retail sector has presented problems for a wide
range of businesses. Woolworths, that most talismanic of British chains,
felt the strain perhaps the most acutely and has ceased to trade
altogether. Many others are scaling back their ranges, reining in
spending, and concentrating on evergreen product lines that they believe
will offer steady, predictable returns.

Retail opportunities for SMEs and how to make the most of them

It is easy to be overwhelmed by the constant torrent of disastrous
figures in papers and on the news. However, it is important to remember
that the retail sector is not dying. Rather, the economy as a whole is
going through a trough in its cycle. When a company cuts back or fails
altogether, this is obviously unpleasant for those involved. However,
these events also represent an opportunity for enterprising, agile small
and medium sized businesses (SMEs) willing to take on a challenge and
hungry for new revenue streams.

Take Woolworths as an example. Just two years ago the retailer had an
annual turnover of £2.7 billion. This is now an open revenue stream - a
stream which smaller retailers should be looking to direct their way.
Woolworths satisfied a number of consumer needs; where else, for
example, can you pick up machine dye on the high street? Exactly. These
needs still exist, and consumers are looking for new providers.

Established retailers will leave behind a massive market niche if they
fail, or if they choose to stop offering certain lines. It is up to
smaller businessses to fill these niches. SMEs are particularly well
placed to perform this task; in contrast to huge lumbering corporations,
managers at a well-run SME will frequently be the key decision-makers -
because they will frequently be the business owners. This means that
small businesses can move and adapt quickly to seize new business
opportunities.

There are a few key steps to consider in order to minimise the risk of
missing a valuable retail opportunity.

Learn to spot a genuine opportunity

Before deciding whether or not an opportunity is worth pursuing, you
need to be able to assess whether or not it is actually an opportunity
at all. Why does this niche exist in the first place? Or, perhaps more
pertinently, why has the existing provider failed?

There are a number of potential reasons for a retailer’s failure. It is
possible that the company was simply inefficient, and lacked the
management skill necessary to maintain a viable business. It may also
have failed due to reasons beyond its control, but not related to the
quality of its products. Consider the fate of entertainment retailer
Zavvi. It was forced into administration as a result of the Woolworths
collapse, as Woolies owned its biggest distributor. Zavvi was not
selling an inferior product to that offered by, for example, HMV
(although many would suggest that their pricing was unrealistic);
ultimately, they failed as a result of events against which they could
not possibly legislate.

It is vital that you are able to spot when a provider has collapsed
through sheer lack of consumer demand. These are the cases that do not
represent real opportunities. A retail business relies on sales, and if
there is no consumer demand, you too will fail. On the other hand, if
the previous provider collapsed as a result of inefficiencies or
mismanagement, and there is a proven market being left behind, you might
well be on to a winner.

Make preparations to move quickly

Starting now, you should look carefully at the structure of your
organisation. How streamlined is your business? Can you make assessments
and decisions quickly and effectively? If not, why not? A Woolworths in
Balham has already been replaced by a 99p store, a mere three weeks
after its closure. The 99p store is selling virtually the same stock as
was offered by Woolworths, meaning that it has identified a genuine
opportunity, decided to pursue it, and taken the necessary steps to
secure the potential revenue stream in less than twenty-five days. You
must ensure that your business is in a position to do this, even if it
is on a much smaller scale.

Expansion and acquisition will obviously require cash. As such, you
should ensure that you have a scalable finance solution available to you
in advance, ready to be drawn on when a suitable opportunity arises.
Factoring and other forms of asset based finance can be particularly
effective for the purposes of expansion; if you are interested in this
type of finance, you should ensure that you have a sound relationship
with a provider before you actually need to call on them.

Be prepared for a fight

If you have identified a genuine opportunity, there is a high chance
that a competitor, or, indeed, a larger retailer, will be looking to
fill the same niche. If you have done the necessary groundwork, there is
no reason why you shouldn’t be first to seize on this new opportunity.
However, holding onto your revenue stream could well be a struggle,
particularly if you are faced with competition from a much larger
organisation.

In order to minimise this risk you should find your unique selling
point. Consider what it is that draws customers to your business, and
build on this. You should also concentrate on providing as high a level
of customer service as possible; this is frequently lacking in larger
organisations, and can be the key to customer retention for SMEs.

The current downturn is making life very difficult for some retailers,
and will continue to do so for some time yet. However, while many
companies are feeling the strain, others are able to flourish in
challenging market conditions. Making sure that you can identify and
capitalise on new opportunities will help your business thrive while
others flounder, and will ensure that you are on the front foot when the
economic skies clear.